Why (and How) High-Income Millennials Should Brace for a ‘Richcession’

The “Richcession” is coming.

If you’re a high-income earner or wealthy millennial, there is a possibility that you are in for a much rougher ride in the coming recession than lower-income households.

Here are a few ways you can prepare to weather the storm ahead.

What Is a Richcession?

A term coined by Wall Street Journal reporter Justin Lahart, a “Richcession” is a recession that impacts high wage earners and wealthy households more than their lower-income counterparts.

There are a wide variety of factors that may cause this, including:

  • Low unemployment. Unemployment is back at historic lows, keeping lower- and middle-class employees employed. This stability is helping keep the impact of a broader recession to a minimum.
  • High interest rates. The Fed continues to ratchet up interest rates, impacting everything from the cost of capital for a business to variable rate personal loans. For highly leveraged wealth households, this can have a much larger impact on cash flow than lower-income households.
  • Tech layoffs. While unemployment is low, there still have been over 250,000 layoffs in the tech sector alone since 2022, impacting high-wage employees. For example, the median wage at Meta is just under $300,000 per year, which is four times higher than the median household income in the U.S.
  • Stock market impact. While investing in the stock market has never been easier, most invested wealth is still held by the top 1% of households. With the market still down over 10% from all-time highs, this has had a major impact on the net worth of the most heavily invested individuals.

If you are a high-income millennial or wealthy household, there may be more pain ahead. If the “Richcession” comes to fruition, it’s important to be prepared.

Ways To Prepare for the Upcoming Recession

Pad Your Savings Account

If you work at a high-income tech job or other highly skilled position, losing that income could be a huge blow to your day-to-day life. Saving a healthy emergency fund can help soften the impact while you look to replace your income, which may take longer than expected.

Christopher Berry, certified elder law attorney and investment advisor for Castle Wealth Group, said, “Having an emergency fund with at least three to six months’ worth of living expenses can provide a safety net during tough times.”

Pause on the Luxury (for Now)

There are needs, and there are wants. And then there are luxury items.

As the recession looms, you may want to consider passing on luxury items for now, lowering your overall monthly expenses and keeping a healthy gap between what you earn and what you spend.

This doesn’t mean you have to stop eating out or spending on things you enjoy. But skip the luxury items that are solely there for status reasons and depreciate massively once purchased.

Refinance (or Consolidate) High-interest Debt

Yes, interest rates are high. But if you have excessive high-interest debt (10% APR or more), it may be a smart move to consider refinancing or consolidating that debt.

Berry recommends paying off “high-interest debt, such as credit card balances” as they can severely deplete your monthly cash flow. Refinancing your debt can help you save on interest in the long run; but, in the short term, it can also lower your monthly payments.

If a layoff is possible in your future, you will want to keep your expenses low, and refinancing or consolidating your debt can be a quick way to make this a reality.

Update Your LinkedIn Profile

LinkedIn has become one of the most popular social media platforms for professionals; but, if you haven’t updated your profile in a while, you may be missing out on future opportunities.

Take an hour to polish up your profile, add in relevant experience and credentials, and make sure your work history is up to date.

Post some updates on LinkedIn as well. The more you post and comment, the more visibility your profile will have.

Invest More

If you are fortunate enough to still have a job in tech and are earning an above-average income, a recession is one of the best times to double down on your investments. With the stock market and other asset prices dropping, you can keep an eye out to scoop up deals that may have been overpriced before.

If you’re a steady investor who focuses on dollar-cost averaging, consider increasing your contributions to take advantage of low-priced investments while the economy is in recovery.

Bottom Line

If a recession is truly on its way, it never hurts to have a plan in place. As a high-income earner, losing your income may disproportionately impact your lifestyle and can quickly turn into a nightmare if you aren’t prepared. Putting away some extra savings, cutting back slightly to lower your monthly expenses and networking with others in your industry are always great ideas, but they may become necessities in the near future.

Berry further recommends that millennials keep “up to date with economic news and trends … [to] make informed decisions about their finances during a recession.”

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